Joe’s Lawn Care Service primarily mows lawns for residential customers. Management has determined direct labor hours is the primary cost driver and has developed the following cost equations based on direct labor hours:a. Prepare a flexible budget for each of the following activity levels: 990, 1,080, 1,170, and 1,260 direct labor hours. ### Direct Labor Hours and Cost AnalysisThe table below presents a breakdown of costs associated with varying direct labor hours (DLH). The table categorizes costs into variable and fixed segments, providing detailed insights for each duration of labor hours.#### Direct Labor Hours Table| **Direct Labor Hours** | **990** | **1,080** | **1,170** | **1,260** ||---------------------------|----------|------------|------------|------------|| **Variable costs:** | | | | || Supplies | $ | $ | $ | $ || Direct labor | $ | $ | $ | $ || Overhead | $ | $ | $ | $ || **Total variable costs** | $ | $ | $ | $ || Variable cost per DLH | $ | $ | $ | $ || **Fixed costs:** | | | | || Overhead | $ | $ | $ | $ || Fixed costs per DLH | $ | $ | $ | $ |#### Detailed Explanation- **Direct Labor Hours:** Represented in four columns showing different durations: 990, 1,080, 1,170, and 1,260 hours.- **Variable Costs:** - **Supplies**: Indicates the cost of materials used that vary with the level of production. - **Direct Labor**: The wages paid to workers, which vary with hours worked. - **Overhead**: Other variable costs associated with production, excluding direct materials and labor.- **Total Variable Costs:** The sum of all variable expenses.- **Variable Cost per DLH:** The average variable cost allocated per direct labor hour. - **Fixed Costs:** - **Overhead**: Costs that do not vary with the level of production, such as rent, salaries of permanent staff, and equipment depreciation.- **Fixed Costs per DLH:** The fixed costs allocated per direct labor hour.This table is useful for understanding how both variable and fixed costs change with increasing direct labor hours, aiding in the analysis of cost behavior in production processes. ### Understanding Cost Behavior in BusinessIn the field of managerial accounting, it's crucial to understand how different costs behave with changes in the level of business activity. The table below provides insights into how various costs are structured and their behavior as business activity changes.| Cost Type | Cost Behavior Equation ||--------------------------|---------------------------------|| Lawn supplies (variable) | $ y = $0 + $4.00X $ || Direct labor (variable) | $ y = $0 + $12.00X $ || Overhead (mixed) | $ y = $8,000 + $1.00X $ |Let's break down each of these cost behaviors:1. **Lawn Supplies (Variable Cost):** - **Equation: $ y = $0 + $4.00X $** - This cost is completely variable. The total cost of lawn supplies depends on the activity level (denoted as X). For every unit increase in activity, the cost increases by $4.00. There are no fixed costs associated with lawn supplies, as indicated by the $0 fixed component.2. **Direct Labor (Variable Cost):** - **Equation: $ y = $0 + $12.00X $** - Like lawn supplies, direct labor is also a variable cost. For every unit increase in activity level, the direct labor cost increases by $12.00. Again, there are no fixed costs associated with direct labor.3. **Overhead (Mixed Cost):** - **Equation: $ y = $8,000 + $1.00X $** - Overhead costs are mixed, which means they have both fixed and variable components. In this case, the fixed cost is $8,000, regardless of the level of activity. Additionally, for every unit increase in activity, the variable component of the overhead cost increases by $1.00.### How to Interpret Cost Equations- **Fixed Costs:** These are costs that remain constant regardless of the level of activity within a relevant range. In the overhead cost equation, the fixed cost is $8,000. - **Variable Costs:** These are costs that vary directly with the level of activity. In the lawn supplies and direct labor equations, the costs increase by $4.00 and $12.00 per unit of activity, respectively.- **Mixed Costs:**

Name: Joe’s Lawn Care Service primarily mows lawns for residential customers
Uploaded: 2024-03-20T06:33:06.000Z
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Description: Joe’s Lawn Care Service primarily mows lawns for residential customers. Management has determined direct labor hours is the primary cost driver and has developed the following cost equations based on direct labor hours:a. Prepare a flexible budget fo